Credit Card Basics: Five Essential Skills for Mastering Plastic
Published on - September 4th, 2008 (Modified on - December 12th, 2011) (by J.D. Roth) 
The latest issue of Consumer Reports (October 2008) has an article about the new credit card jungle. The faltering economy and the ongoing mortgage crisis may be affecting your credit cards; issuers are raising rates, changing terms, and lowering credit limits. The magazine notes: “Now is an essential time to do a credit-card checkup to make sure your accounts haven’t changed for the worse.”
I like the idea of a credit-card checkup, but I don’t think it’s something you should do just once in a while. To avoid the dangers lurking in this credit card jungle, it’s important to foster a set of survival skills that will help you avoid danger spots before you blindly stumble upon them. Here are a few:
- Learn to read the fine print. Read the legal stuff when you fill out the application, when you receive the card, and on any future mailings. Credit card terms and conditions can be confusing. This credit card glossary can help. If you don’t understand something, ask for help.
- Similarly, review your statement every month. Due dates, fees, and interest rates are subject to change. Reconcile transactions and keep an eye out for fraud. Many people — and I’m one of them — actually check their statements online several times a month. By paying attention, you can prevent small annoyances from becoming large hassles.
- As always, don’t be afraid to speak up. If you notice something strange on your bill, call customer service. If you want to dispute a charge, call customer service. If you want a rate reduction, call customer service. It never hurts to ask.
- Be wary of the special offers your credit card company sends you. Understand the teaser rates. Beware offers to skip a payment. Be suspicious of other products the company tries to push: insurance, fraud protection, etc. Many of these are bad deals for consumers.
- Finally, pay your bill on time and in full every month. If you are not yet in credit card debt, don’t start. Don’t rely on credit cards to support a lifestyle you cannot afford. Don’t resort to using a credit card because you can’t afford to pay cash for something — use a credit card because you can.
Remain vigilant against the scourge of credit card debt, the quicksand of personal finance. Credit cards are not a source of free money — don’t treat them as such. Credit cards are tools that allow you to use the money you already have in different, more efficient ways.
For example, I save 1% on my utilities by paying with my cash-back credit card. These are expenditures I’d make anyhow, but the card saves me money. (As a bonus, using the credit card helps with my quest for a paperless personal finance system.)
For more on this subject, check out these past Get Rich Slowly articles:
- Why I applied for a credit card (and why it’s not the end of the world)
- How those evil credit cards can be good for you
- A credit card is not an emergency fund
- Life without credit cards
What do you consider essential credit card skills? What sort of credit card basics do you think people should know?
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This article is about Basics, Credit Cards, Hints and Tips, Money Hacks
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Great tips for using a credit card. I am about to get married and my fiance has a credit card (which we will probably combine) so these have been great tips.
You are an awesome blogger. I would love to hear how you build your blog to be so big. Have you already written a post on this?
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I think another tip that people should be aware of is “Know your limits” – not the limit of the credit card (be it $1,000 or $50,000) but know the limits of the amount of interest you can comfortably pay. Because if you go into too much debt it can be really hard to get out of it.
So know your limits definately
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These are great tips. However if you don’t carry a balance on your card and make your payments on time, do you think that it is really necessary to read all the fine print? I often don’t bother because things like interest rates, what makes them change, late fees, etc just don’t apply to me the way that I use my card. Am I missing important information?
RDS
http://financialvalues.blogspot.com/
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@RDS
You certainly are. For example, are you liable for fraudulent usage (funny but sad at the same time), does the bank charge you any fee for early payment? What is considered “fee-able” payment – this can be end of the month, end of the week, end of the day.
I have seen small-print that waives all responsibility from the bank for incorrect payment such as if they overpay or underpay a transaction (very rare but it’s happened to me a few times).
Always read the small-print, because -that- is where they will nail you if they need to pull some muscle. While you may not change your mind, at the very least you will know the consequences for you if something goes wrong.
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Read the small print for another reason too: there are tons of nice benefits hidden in there that you should take advantage of: insurance, shopping protection, etc.
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There is another trick they do now since many of us are acclimated to paying bills online (usually the day before the due date) and this was NOT FINE PRINT. This was with the Sears Mastercard (Citigroup) that I had to sign up for and use for 20% off my three appliances I NEEDED to buy:
For this credit card, they make you ‘enroll’ in online bill payment and its not an instant enrollment. This is a 5 day process for some reason. Next, say you want to pay off a balance of $3000….well, they limit your first payment to $1000 and require a 15 day inbetween time before your next online payment, requiring you to send a followup check. I got hit with a finance charge because I assumed my normal bill paying methodolgy simply applied to this card as well…but when I read in the terms, there was nothing about these limits or waiting periods. This is just something else to watch out for.
This is probably the most CC debt I had ever rang up…and even though it was for about a month or so, the feeling did suck, but we were able to pay for it. Don’t buy stuff unless you can afford it, or unless there is a cushy, 0% financing you will plan to pay off way before the term is expired (ie. paying off furninture in 1 year vs. 3 years if 3 year 0% financing is offered).
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@RDS
Don is right about needing to read all of the fine print in general, but if you do things the boring old way of paying in full and on the due date you shouldn’t have much to worry about.
I know many people who read the blog like to “trick themselves” into paying off the debt by breaking it down to weekly / bi-weekly payments, but as long as you remain responsible and make sure you can cover any charges you put on the card you should be good.
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Good points! I’d add that if you’re in the habit of paying off your card on time, avoid cards with annual fees.
Speaking of fine print, be aware of what “arbitration” means and how it puts you at a disadvantage.
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It’s a shame that so many people will use CC’s for luxuries and things they don’t need. They can be used as a tool and a way to access large amounts of money quickly but this should be used to your advantage and not a means to purchase items you will be paying the minimum on. I use mine to rack up points to get free items but I pay them off quickly
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The Fair Credit Billing Act affords you certain rights which only apply if you write them via USPS mail. Calling them waives these rights that are worth retaining (you are disputing a charge that you don’t want to pay so the more you have on your side the better).
My Chase card agreement blatantly states that calling them will not retain these rights.
DO NOT CALL!
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I have a credit card question if anyone would like to chime in:
What is the best way to get a credit report AND my credit score? I have already used my free credit check for the year.
Thanks.
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I have a bit of a non-traditional approach to using credit cards. For me they are a key piece in managing the psychology of spending.
Each month I put a set amount of money into an online savings account, just enough so that I have stretch every last dollar that is left. I also have a separate account for my mortgage but then whats left goes into my everyday checking account and I literally keep it under 500 dollars at all times. Most months I simply don’t have enough cash to make it through the month and I am forced to put a little bit on my credit card as means in desperate situations. I should note that I HATE using my credit card. However I ALWAYS put significantly more in my savings account. While it might be the smart financial decision to then pay off the credit card out of the savings account at the end of the month, I don’t. This is again all part of managing my own psychology of spending. Instead I keep my credit card around a 10-20% balance so that its not empty and it feels even a little bit more painful to keep charging. Once in a while I pay some of it off to bring it back down but never the full amount. Sure I’m wasting monthly finance charges but in my mind that’s better than the money I would spend if I didn’t manage my money this way.
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5a. Set up automatic payments so you don’t get burned!
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Two more things people should know about credit cards:
1. They can’t be discharged so easily in bankruptcy anymore due to recent changes in the law; and,
2. If you default on any of one of them, all of your other creditors are allowed to increase their interest rates as if you defaulted on them, too. VERY DANGEROUS!
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Just wanted to say that I was fairly pleased with the service I recently received from Chase Dispute Services for an $80 charge (service used to call parents on a cruise ship during a family emergency @ $16/min – which never worked).
First, you always try to contact the company that’s charging you. That didn’t result in anything so I filed the dispute online on Chase’s website.
The whole process was relatively painless and they followed through with some very helpful people, ultimately resulting in the reversal of the charge – mostly due to me dealing with the company directly once I got a valid phone number.
I’ll admit, I was skeptical at first because I was afraid I was going to be farmed out to some offshore operator who couldn’t speak/comprehend english.
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Fwiw I wanted to add that you can call and ask to have your rate lowered. In fact for a good customer the cc companies will often help you out, I’ve had late fees removed [I generally pay in full and on time - the times I've blown it they've ALWAYS removed the fee and interest charges for me!] and credit limits raised or lowered at my request.
Last time I called chase to ask them to lower my interest rate on a cc they a) lowered the rate b) gave me a $25 reward bonus and c) advised me that I could make that call every six months to keep asking for lower rates
Can they jack it up again in between? Sure they can – but if you keep requesting it to be lowered you’ll be in better shape than if you don’t.
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Automatic payments are not the be all and end all with credit cards. I got really burned by American Express and it took 4 months to straighten it out.
Also, if you schedule payments with your online banking account, you can still get screwed if you don’t check it every month and underpay or miss a payment because the payment date fluctuates sometimes as much as 10 days from month to month.
I have learned, the hard way, to look at every statement, every month, and even if you lose a little interest, try to pay the payment at least 5 business days early.
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Learn to read the fine print
This is a subject I’ve been thinking alot about recently after I saw this.
http://valleywag.com/5044902/the-5-most-laughable-terms-of-service-on-the-net
There is no way I can effectively understand all the fine print. There is nothing I can do to change it. Every company now has these long contracts before you use their “service” even if it is only buying a piece of software. And it is not like there is a wide variety of choice for me if I disagree with what is in the contract. I would end up without any credit cards.
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RE: Automatic Payments
I don’t understand why people have so much love for this? The way I see it, it’s my money and I’m going to dictate when it leaves me account.
If it’s an issue of constantly forgetting to pay on time (the excuse I usually hear), then you have completely different problem altogether that needs to be addressed.
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RDS, I do think it’s important to read the fine print, even if you pay the balance in full every month. I’ve mentioned this before, but when I got my card last year, it was only by reading the fine print that I discovered how certain overseas transactions were handled. (And even then, I missed an important point that ended up costing me $8.)
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Great tips. I love my credit card and also use it largely for paperless accounting purposes.
Paying on time and in full is the best credit card advice. And if you have a long history of doing such, you may be able to get away with a one-time late payment.
I was out of town and forgot to do my online accounting, and when I got back I realized I had missed my credit card due date. I called and they waived the fee because I had never been late before. Yay!
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One piece of advice. When you get your statement, if you’re planning to pay the balance, or an amount larger than the minimum payment just before the due date, make the minimum payment immediately. That way if you make a mistake (like me) and miss the due date, you don’t get hammered with a $39 late fee! Capital One.
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Keep track of your charges, so that it isn’t a big surprise when the bill comes. It sounds basic, but it isn’t intuitive that $30 here, $50 there adds up to thousands pretty quickly.
Setting up Quicken and entering and categorizing every credit card receipt was a critical step in turning my finances around.
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…Or you could not use credit cards at all. then the “fine print” wouldn’t apply.
Life is simpler with less “fine print”
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Troy: you must never order anything online, or you’re fine with mailing a check and waiting an extra week.
Granted there’s something to be said for slowing down compulsive shopping…
I have yet to be in an “emergency” that required a credit card to cover it but I did have a college friend who had an artery burst in Mexico and they wouldn’t treat him until he paid…with a credit card. Card literally saved his life, which is sad.
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Great Article. Consumer Credit Card Debt in this country is out of control and causing all the stress in this bad economic time. You can not spend more then you make and credit card companies target college students to get way over their heads and never recover.
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If you’re at all likely to be tempted, shred those balance transfer checks the moment they arrive. (Well, shred them anyway, regardless of whether you’re tempted…). Then request that the company stops sending them.
When it comes in the form of a check, a credit line starts to feel too close to free money.
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Ryan, I have basically no idea what my credit limits are. I know in general that if I added them all up, I could easily buy several cars with that amount of credit. However, since I don’t ever use them as free money, I never, ever get close to reaching my limit.
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Colin:
Debit Card
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Troy: Touche, but that doesn’t get you free from fine print.
Banks backing credit cards and banks backing debit cards are still out to make money off of you, it’s just credit card banks are much more vicious and predatory. They both have their fine print.
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Colin:
That is true. Debit cards do have fine print. However, the fine print has zero to do with grace periods, interest rates, or any other changes which people have to be aware of. The fine print of my debit card has never affected my use of it. And the fine print doesn’t change.
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Online purchases, where you have to worry the most about fraud, and you are using a debit card with no fraud protection instead of a credit card? Yikes.
And do you pay cash for your cars and houses?
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Adam:
“…using a debitcard with no fraud protection”
That is inaccurate. Debit cards issued through either visa or mastercard have the same fraud protections. My bank has zero liability on debit cards.
Using a credit card and having to deal with changing terms, universal default, grace periods, due dates, statements, payments, risk of “missing payment”. Yikes
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Haven’t we been through the debit vs. credit card debate several times already?
When fraud or theft occurs with a debit card, the money is sucked directly out of my checking account, and it can take several days to get the money back. No, thanks.
When theft or fraud has occurred with a credit card, the fraudulent charges are usually removed well before the next billing cycle. No money ever leaves my possession.
I’m much more comfortable avoiding debit cards and using credit cards intelligently. As always, your mileage may vary.
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Read the fine print for benefits. If you have an annual fee card, the benefits should be greater than a no fee card. Some worthwhile benefits on cards are trip interruption insurance and car rental insurance.
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Frankly…I’d rather not do that dance, but you have a lot of good information. Kudos.
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Credit cards can be great when used strategically. However, as you suggest, one must study terms and conditions very carefully.
One mistake that we see all too often relates to balance transfers. Many people get excited about the promotional balance transfer rate, and transfer a large amount to the card. Then at some point in the future they use the card to purchase goods or services. The problem is that most credit card companies have policies that indicate that a customer’s payment will be first directed to the balances with the lowest interest rate. The net result is that the customers payments are directed towards the balance with the promotional rate, while the balance from the more recent purchases sits accruing interest charges at a much higher rate.
I know that regulators have been looking at cracking down on unethical credit card policies – I hope that they give customers the ability to choose which balances to apply their payments to in the future.
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I have my credit card due dates posted on my calendar. I also check/pay on them several times a month. On another note, have you ever noticed how many clicks it takes in your online credit card account to see your interest rate?! I check that online frequently and it’s a three or four click process. I’m sure that’s intentional!
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“Paying on time and in full is the best credit card advice. And if you have a long history of doing such, you may be able to get away with a one-time late payment.”
I can vouch for that. I was forgiven “just this once” a couple of times. Since then I switched to automatic payment in full. I did read the story about somebody having problems with it, but it is just so convenient. I don’t have to think or worry when they take the money, I don’t need to write checks – hate doing it, I save on stamps. Besides they always take the money on the very last day, and if it falls on a weekend, they sometimes take the money the following day, and I am still not late. But this way I get full grace period worth of interest.
@RDS, Don: I’ve never really read the fine print. As to the reasons Don mentioned:
“For example, are you liable for fraudulent usage”
Never – this is not subject to fine print. Maybe with debit cards this could be bank’s policy, but credit cards are governed by Fair Credit Billing Act. The only thing that may be in fine print if whether you are responsible for the first $50 or not, but with most cards you aren’t.
“does the bank charge you any fee for early payment?”
Never seen a card which charges a fee for early payment. Has anybody? No, it isn’t a good idea to pay before the purchase cycled – i.e. when the “amount due” is 0, but simply because they may have bugs in their computer system with handling negative amounts. It’ll get resolved eventually, but just in case.
“What is considered “fee-able” payment – this can be end of the month, end of the week, end of the day.”
You should never let it get that close to the due date that this will become an issue.
Now, some fine print is useful – e.g. AmEx extended warranty protection or other rewards. But in general, paying in full by the due date makes reading the fine print far less important.
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OMG!…When I saw Cindy McCain’s outfit and realized that the outfit alone was close to half the amount of the national average of household credit card debt and THEN when I read that her jewelry alone cost as much as my neighbor’s house was worth after the “Housing Crash” made me ILL!
I thought of Marie Antoinette immediately ["Let them eat cake"]and low and behold I was not far off:
http://www.truthdig.com/eartotheground/item/20080904_cindy_mccains_let_them_eat_cake_dress
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I’d invest in a big 3 ring binder and a manila envelope. Put your statements in the three ring binder and keep your recipts for the statement cycle in the manila envelope. Then check your receipts with the statements and staple the receipts onto the statement to keep everything in track. This also forces you to double check what the credit card company is saying you owe. Just because they are the bank doesn’t mean they don’t make mistakes.
I’ve outlined how I organize my bank statements on my blog – http://www.russellheimlich.com/blog/how-i-organize-my-bank-statements/
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Be careful of the latest trend in Credit Card Terms:
Your interest is now based on your average daily balance.
So if you charge something on the 1st of the month, and your due date is the 30th, but you pay it (in full) on the 29th, be aware that you will still be charged interest on the balance from the 1st through the 29th of the month.
Some card still offer a grace period, but that is getting smaller and smaller…it used to be 30 days on all my cards, now some are as short as 15 days! Most are now 20 days. So I would HAVE to pay my card off on the 19th (or really, every 19 days), just to avoid interest.
To really “getchya” on this, many cards will also not let you send more than 3 payments in any one billing cycle, And/Or not let you send payments less than 5 days apart.
So unless you are really clever, alert, good at math, and thinking about what days you charge and pay your card, you are very likely to get “zinged” on interest SOMETIME or another. Granted, its probably only a few pennies…but if you’re attempting to pay $0, chances are the credit card company is going to make you fail at that, somehow.
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While I 100% agree with the “pay it off every month” idea, it’s *really* hard to get there when you have a substantial balance you are trying to get rid of (which I do: about $9k). That’s why people are tempted to take on the balance transfer deals. I am definitely tempted, but I’m really afraid of being screwed over.
Perhaps something should be written on how to take advantage of those deals, while not in turn being taken advantage of?
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